Hedge Funds Are Crazy About Merus N.V. (MRUS)

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the first quarter, which unveil their equity positions as of March 31st. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Merus N.V. (NASDAQ:MRUS).

Merus N.V. (NASDAQ:MRUS) was in 23 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 15. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. MRUS investors should be aware of an increase in enthusiasm from smart money in recent months. There were 14 hedge funds in our database with MRUS holdings at the end of December. Our calculations also showed that MRUS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s take a glance at the recent hedge fund action encompassing Merus N.V. (NASDAQ:MRUS).

Do Hedge Funds Think MRUS Is A Good Stock To Buy Now?

At first quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 64% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MRUS over the last 23 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, Biotechnology Value Fund / BVF Inc was the largest shareholder of Merus N.V. (NASDAQ:MRUS), with a stake worth $152.2 million reported as of the end of March. Trailing Biotechnology Value Fund / BVF Inc was Baker Bros. Advisors, which amassed a stake valued at $42.6 million. Driehaus Capital, Avoro Capital Advisors (venBio Select Advisor), and Cormorant Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Biotechnology Value Fund / BVF Inc allocated the biggest weight to Merus N.V. (NASDAQ:MRUS), around 5.71% of its 13F portfolio. SilverArc Capital is also relatively very bullish on the stock, dishing out 2.79 percent of its 13F equity portfolio to MRUS.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Merus N.V. (NASDAQ:MRUS) headfirst. Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, established the most outsized position in Merus N.V. (NASDAQ:MRUS). Avoro Capital Advisors (venBio Select Advisor) had $13.9 million invested in the company at the end of the quarter. Devesh Gandhi’s SilverArc Capital also made a $5.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Ting Jia’s Octagon Capital Advisors, Albert Cha and Frank Kung’s Vivo Capital, and Joseph Edelman’s Perceptive Advisors.

Let’s now review hedge fund activity in other stocks similar to Merus N.V. (NASDAQ:MRUS). We will take a look at Altabancorp (NASDAQ:ALTA), First Mid Bancshares, Inc. (NASDAQ:FMBH), Harmonic Inc (NASDAQ:HLIT), VBI Vaccines, Inc. (NASDAQ:VBIV), CAI International Inc (NYSE:CAI), Corporacion America Airports SA (NYSE:CAAP), and Community Trust Bancorp, Inc. (NASDAQ:CTBI). All of these stocks’ market caps resemble MRUS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALTA 4 27867 -2
FMBH 2 667 -2
HLIT 16 103781 1
VBIV 7 173094 -1
CAI 17 123797 0
CAAP 2 2027 -2
CTBI 9 20137 -2
Average 8.1 64481 -1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.1 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $284 million in MRUS’s case. CAI International Inc (NYSE:CAI) is the most popular stock in this table. On the other hand First Mid Bancshares, Inc. (NASDAQ:FMBH) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Merus N.V. (NASDAQ:MRUS) is more popular among hedge funds. Our overall hedge fund sentiment score for MRUS is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. Unfortunately MRUS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MRUS were disappointed as the stock returned -17.5% since the end of the first quarter (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.